How to Get Ready to Purchase Your First Home
Most people work hard to own a home and invest in real estate, which can offer financial security later on in life as the home increases in value. When it comes to preparing to buy your first home, there are often several different steps that you'll need to take. Here are a few tips to follow when you're getting ready to become a homeowner.
Increase Your Credit Score
Your credit score is a reflection of how well you manage your money and repay the debt that you owe. Lenders carefully examine the credit score to determine if they can trust you with repaying your home loan over time. Most lenders approve applications if the borrower has a credit score of at least 740, making it necessary to boost your score by paying off your debt and avoiding late payments. Consider paying more than the minimum amount when making your payments each month, which will increase your score. Take a close look at your credit report to determine if any errors are present, which you can request to have removed. Avoid closing any of your accounts, which can negatively impact the score.
Boosting your credit score is also necessary because it will allow you to obtain lower interest rates, which can reduce your mortgage payment each month. Avoid opening any new lines of credit after you apply for a loan, which can threaten your application if you begin to borrow more money.
Pay down Your Debt
Your debt-to-income ratio is one of the main factors that influence how much money you can borrow for your first home. Pay down debt that you've accumulated with student loans, auto loans, credit cards, or any other accounts that you've opened. Although you may have a high household income, your debt will limit how much you can afford when you're ready to begin shopping for a house.
Find a Real Estate Agent
Hiring a real estate agent is necessary to ensure that you can find a professional to help you with each step of the home buying process. A real estate agent can expose you to certain homes that may not be listed and can allow you to have more options that are available. They'll listen to your needs and will tell you what you need to hear while having your best interest in mind. Consider asking your family members and friends for a referral to ensure that you can find someone that you trust. Looking online can also allow you to find an agent that has several years of experience in the industry and a strong reputation in the local area.
They can also help you with the negotiating process once you make an offer on a home to ensure that you get a good deal without turning off the buyer. Although a real estate agent will cost more when buying your first home, you can end up saving more money with their assistance while negotiating the selling price. It will also make for a smoother and quicker process instead of trying to navigate each step on your own.
Save for a Down Payment
Saving enough money for a down payment is necessary to secure your home loan. Most people save an average of 20 percent, which will reduce your monthly payment and can make it easier to afford a more expensive property. You'll also need to save an average of two to five percent of the selling price of the home for closing costs. Closing costs cover deed-recording fees, taxes, title searches, credit report charges, loan orientation fees, and discount points.